Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Wednesday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, like one-star mortgage lenders IndyMac Bancorp and Countrywide Financial (NYSE: CFC). Stocks go up all the time, but unless you were able to predict the pop, what does it matter? 

Our community of more than 96,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 981 CAPS players who've rated Excel Maritime, more than 96% have a bullish opinion. Fueled by that Foolish support, the Greece-based dry-bulk shipper recently regained its five-star rating.

Just two weeks ago, CAPS All-Star bbuttri2 commented on Excel's proposed acquisition of another highly rated shipper, Quintana Maritime:

The merge with Quintana will diversify Excel's exposure. Management said it is also looking for more consolidation. This means more predictable earnings, better diversification, larger fleet, larger client base, etc. Low P/E, sector unjustly out of favor, decent dividend. The market will catch on soon.

Exactly as bbuttri2 had predicted, Excel's shares soared yesterday, as investors cheered the final details of the $1.9 billion Quintana acquisition. According to one Wall Street analyst, Excel has essentially gained access to new long-term charters, which could translate into a higher dividend for investors.

The bullish lesson?
Sometimes, one plus one really does make three. Some of the better reasons for a merger include the use of complementary resources, increased operating efficiencies, and, as CAPS' bbuttri2 pointed out, industry consolidation. So, if you ever come across a proposed deal that has prospects for one (or all) of the above, it might be a good idea to jump in -- especially if Wall Street hasn't realized it yet.

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are Wednesday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in five-star stock Huaneng Power International (NYSE: HNP) may have caught our community off-guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Back in August 2006, for instance, CAPS All-Star TMFLucky11 shared the sad tale of Talbots:

I think that, at least in the short term, Talbots' best days may be behind it. Women's trends are changing, and Talbots hasn't. This is not good.

Consistent with that call, shares of Talbots plunged nearly 30% yesterday after HSBC and Bank of America finally decided to pull their lines of credit to the severely struggling retailer.

The bearish takeaway?
Take the time to know your customer. The retail apparel business is especially vulnerable to fickle consumer tastes, so if you plan to invest in this space, it's vital that you're able to keep up with what's "hot" and what's "not." As the Fool's own TMFLucky11 understood, once a company's fashions start to fall out of favor, it's just a matter of time before its financials and stock price follow suit.

The final Foolish move
Investors often focus strictly on stock price movements without realizing that developing a proper stock-picking process counts most.

Over at Motley Fool CAPS, thousands of investors are Foolishly sharing insightful investment tips to help, above all else, identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you become a more Foolish investor.

Log in to CAPS today and start participating. It's absolutely free and a lot of fun!